The American Health Choices Plan:

Ensuring Affordable, Quality, Health Care for All Americans

Today, Hillary Clinton unveiled the third part of her plan to ensure that all Americans have
affordable, quality health insurance. Her American Health Choices Plan covers every
American – finally addressing the needs of the 47 million uninsured and the tens of millions of
workers with coverage who fear they could be one pink slip away from losing their health
coverage. For those with health insurance, the plan builds on the current system to give
businesses and their employees greater choice of health plans – including keeping the one they
have – while lowering cost and improving quality.

Providing a Choice of Insurance Plans

The American Health Choices Plan preserves existing health insurance and offers new choices
to those with insurance and to the 47 million people in the United States without insurance. It
ensures portability so that Americans do not lose coverage when they change or lose their
jobs. Americans will have three options:

1) Keep Current Health Care Coverage: Americans who are satisfied with the coverage
they have today can keep it. Nothing would interfere with their insurance or their
relationship with their health care provider. The only significant change they will see will
be lower costs and higher quality health care as the modernization initiatives to improve
value in our health care system take effect and as the achievement of seamless coverage
reduces the hidden tax on premiums that comes from current cost-shifting.

2) A Choice of Health Plan Options: Businesses, employees, and the uninsured will have
the option of buying group insurance through a new Health Choices Menu. This Menu
will give all Americans the same set of insurance options that their Member of Congress
has. Without creating new bureaucracy, the Menu will be part of the Federal Employee
Health Benefit Program (FEHBP), which includes numerous, high-quality private health
insurance options. The Health Choices Menu will have the purchasing power of millions
of Americans in securing high-quality and affordable insurance. States will also have the
option of banding together to offer the same type of choices in a region of the country if
they wish. The benefits will be as good as those offered to Members of Congress. Such
coverage includes mental health parity, and many plans offer dental coverage. In addition,
as a condition of doing business with the federal government, insurers must cover high-
priority preventive services that experts agree are proven and effective. This focus on
prevention will improve health and lower costs in the long run.
3) A Choice of a Public Plan Option: In addition to the array of private insurance choices
offered, the Health Choices Menu will also provide Americans with a choice of a public
plan option, which could be modeled on the traditional Medicare program, but would
cover the same benefits as guaranteed in private plan options in the Health Choices Menu
without creating a new bureaucracy. The alternative will compete on a level playing field
with traditional private insurance plans. It will provide a more affordable option, in part
through greater administrative savings. It will not be funded through the Medicare trust
fund.

Eliminate Insurance Discrimination,

Improve Quality, and Rein-in Costs

Equally important as providing choice is ensuring affordability and preventing insurance

discrimination. Insurance companies in America spend tens of billions of dollars per year
figuring out how to avoid costly beneficiaries. This contributes to our health system costing
50 percent more per person than the next most expensive country. In a reformed system
where all Americans are covered and risk is spread extensively, administrative costs could be
dramatically reduced. The American Health Choices Plan addresses these barriers to quality,
affordable care by:

1) Eliminating Insurance Discrimination: The plan creates rules that all insurers must
follow, ensuring that no American is denied coverage, refused renewal of an insurance
policy, unfairly priced out of the market, or charged excessive insurance premiums.
Health plans will compete on cost and quality rather than avoiding patients who need
insurance the most. The plan will:

ƒ Require Guarantee Issue: Insurers must offer coverage to anyone who applies and
pays their premium. This protection, known as guarantee issue, will ensure that no one
is ever denied coverage because they are sick or an insurer fears they will be.

ƒ Require Automatic Renewal: Insurers will be required to automatically renew

policies if the enrollee wishes to stay in the plan.

ƒ Require Strong Rating Protections: Insurers would be prohibited from charging

large premium differences based on age, gender, or occupation (for example, a
standard set of modified community-rating protections).

ƒ Require Minimum Stop-Loss Ratios: Premiums collected by insurers must be

dedicated to the provision of high-quality care, not excessive profits and marketing.

2) Improving Quality for All and Achieving at least $120 Billion Per Year in Savings
Nationwide: Responsible health reform requires modernizing our nation’s health system
to eliminate waste, promote prevention and guarantee quality. While the majority of such
savings flow to the employers, workers, and local governments, a substantial portion of the
savings will accrue to the federal government, and will be reinvested in the necessary up-
 front investments to ensure affordable health coverage for all Americans. The plan will:

ƒ Ensure That All Providers and Plans Use Privacy-Protected Information

Technology: The proposal will give doctors financial incentives to adopt health
information technology and facilitate adoption of a system where high quality care and
better patient outcomes can be rewarded. The RAND Corporation estimates net
savings from the use of information technology to be $77 billion per year.i Recently,
the Business Roundtable, SEIU, and AARP estimated that “widespread adoption [of
such IT reforms] raises the potential savings to $165 billion annually.” Hillary Clinton
has been a leader on this issue in the Senate and will get it done as President.

ƒ Prioritize Prevention to Reduce the Incidence of Disease that Impose Huge

Human and Financial Burdens: Only half of recommended clinical preventive
services are provided to adults and less than half of adults had their doctors provide
them advice on weight, nutrition, or exercise.ii Only 38 percent of adults receive
recommended colorectal screening. Hypertension contributes to 35 percent of all heart
disease and dramatically increases the risk of stroke, yet only one in three people with
this condition know it, despite simple, proven screening tests. Along with
guaranteeing accessible insurance throughout the system, the American Health
Choices Plan requires coverage of preventive services that experts agree are proven
and effective.

ƒ Improve Care of the Chronically Ill: Americans with multiple chronic diseases –
including heart disease and diabetes – account for 75 percent of our total national
health expenditures and are the leading causes of death in the U.S.iii The American
Health Choices Plan will promote chronic care management programs as well as
innovative models such as “medical homes.”

ƒ Fund and Distribute Independent Research to Compare Effectiveness of

Treatments: In the past decade, there has been an 80 percent growth in the number of
drugs prescribed, 100 percent growth in new medical device patents, 300 percent
growth in teaching hospital procedures, and 1,500 percent growth in diseases with
gene tests.iv Patients, providers and payers need information on how treatments
compare to one another. The American Health Choices Plan funds a Best Practices
Institute that would work as a partnership between the existing Agency for Healthcare
Research and Quality and the private sector to fund research on what treatments work
best and to help disseminate this information to patients and doctors to increase quality
and reduce costs.

Promoting Shared Responsibility

One cause of the crisis in the health care system is that rather than containing costs, the system
shifts them: about half of all hospital losses are passed along to other payers.v Rather than
reducing prices, the system raises families’ costs. In fact, people in high-deductible plans are
twice as likely to delay or avoid needed care due to costs.vi Rather than rewarding health, the
system pays more for acute treatment than prevention, and gives individuals no direct
incentives to promote their own health. And, rather than covering all Americans, the system
charges insured families a “hidden tax”: premiums are roughly $900 higher to pay for the cost
of care for the uninsured.vii Hillary Clinton’s American Health Choices Plan is based on the
principle of shared responsibility. This plan ensures that all who benefit from the system
contribute to its financing and management. Specifically, responsibilities include:

ƒ Insurance and drug companies: For insurers, to end discrimination based on pre-
existing conditions or expectations of illness and ensure high value for every premium
dollar; and for drug companies, to offer fair prices and accurate information;

ƒ Individuals: To get and keep insurance in a system where insurance is affordable and
accessible;

ƒ Providers: To work collaboratively to provide high-quality care;

ƒ Employers: To contribute to health coverage, with large firms required to provide

health insurance or contribute to the cost of the system, and small businesses offered
tax incentives to continue or begin to offer coverage;

ƒ Government: To ensure that health insurance is always affordable through investments

in tax credits and the safety net so that coverage is never again a crushing financial
burden; to improve the quality performance of the system; and to end the upward cost
spiral of the system that threatens our health and economy.

Ensuring Affordable Health Coverage for All

Americans value health care and coverage, but its cost is often prohibitive. Over half of the
uninsured in a recent survey said they couldn’t afford it.viii This is not a surprise. The average
family premium for employer-based coverage (including employer and employee
contributions) is over $12,000.ix For half of Americans, this total premium accounts for at
least one-fourth of their annual income.x This helps explain why two-thirds of the uninsured
have incomes below 200 percent of the poverty limit (roughly $40,000 per year for a family of
four). The cost of insurance is a serious barrier to coverage for people with high health care
needs or limited access to job-based insurance. The premium for a person with a health
problem can, in some states, be many times higher than that of a young, healthy person. Being
young does not necessarily mean easy access to affordable coverage, however. Nearly 30
percent of young adults are uninsured,xi and one in three young adults reported some type of
medical debt problem, with the percent climbing to 46 percent for uninsured young adults.xii
Young adults are less likely to get insurance because they are more likely to work part-year or
part-time jobs which rarely offer health benefits (23 percent of part-time workers are
uninsured). xiii Women also have higher health needs but lower incidence of paid work that
offers insurance.xiv The problem of affordability of insurance also contributes to racial
disparities in health outcomes. The uninsured rate for African Americans is one third higher
and that of Hispanics is over twice the uninsured rate for white Americans.xv Lack of access
to health care due to lack of coverage, even for a short period of time, can lead to worse health
outcomes and financial insecurity.

The American Health Choices Plan will make health insurance more affordable for the
millions of Americans who want it. It includes a number of straightforward policies to
achieve this end:

1) Ensuring Premium Affordability Through Refundable Tax Credits: Premiums have

skyrocketed over the last several years – nearly double since 2000. The American Health
Choices Plan helps working families afford coverage through refundable, income-related
tax credits to ensure that accessible, high-quality health coverage is affordable to all.

2) Limiting Premium Payments to a Percentage of Income: This credit will ensure that
securing quality health care is never a crushing burden for any working family. This
guarantee will be achieved through a premium affordability tax credit that ensures that
health premiums never rise above a certain percentage of family income. The tax credit
will be indexed over time, and designed to maintain consumer price consciousness in
choosing health plans, even for those who reach the percentage of income limit.

3) Promoting Shared Responsibility for Large Employers: Hillary Clinton’s

comprehensive agenda to lower costs and improve quality will substantially lower costs
for employers, making it easier for all firms to continue coverage or offer new health
benefits to their workers. In return, large employers will be expected to provide health
insurance to their employees or make some contribution to the cost of coverage. This
responsibility will take into account firms' size and average wages.

4) Creating Small Business Tax Credit: Small businesses are engines of job growth in our
economy. They account for 80 percent of net new jobs since 1990xvi and create jobs that
stay here in America. Yet, they also face the most acute challenges to providing health
care for their employees. Small businesses face higher premiums due to limited
purchasing power and tend to employ lower-income workers.xvii As a result, small
employers cover far fewer of their employees – and the proportion that offers coverage in
the first place is less than half that of large firms that offer health insurance. Coverage
among small employers is eroding. Since 2000, the share of these small firms offering
coverage has fallen from 57 percent to 45 percent. xviii At a time when health care costs are
increasingly undermining the economic competitiveness of American business, Hillary
Clinton’s plan seeks to make it easier — not harder — for small businesses to create new
jobs with health care for workers here in the U.S. Specifically, small businesses that
provide quality coverage (e.g., benefits like what Members of Congress receive) and
contribute most of the premiums for their workers would qualify for a refundable tax
credit. The tax credit could be structured as a traditional policy (e.g., a credit equal to 50
percent of premiums for firms with fewer than 25 employees and less for medium-size
employers). As President, Hillary Clinton would work with the small business community
and Congress to design the parameters of the credit (e.g., protecting against subsidizing
boutique high-income firms) as well as how the credit might dovetail with the tax credit
going to individuals and families to make premiums affordable.
5) Strengthening Medicaid and the State Children’s Health Insurance Program to Serve
All Low-Income Individuals: These programs serve over 55 million Americans, and have
done so successfully through federal-state and private-public collaborations. The holes in
this safety net (e.g., lack of coverage of poor, childless adults) will be fixed to ensure that
the most vulnerable populations receive affordable, quality care. Similarly, the other part
of the safety net, like public hospitals and community health centers, will continue to
receive support to serve vulnerable populations.

6) Creating a Retiree Health Legacy Initiative: For major American employers with
workforces that face unusually high health care costs due to a high ratio of retirees, health
care costs can be a drag on competitiveness and job creation – particularly for our major
manufacturers. The American Health Choices Plan will provide a tax credit for qualifying
private and public retiree health plans to offset a significant portion of catastrophic
expenditures that exceed a certain threshold. Such reinsurance would be time-limited to
reflect the short-term demographic need of the aging baby boomers, and would be devised
in a manner that does not add to our long-term fiscal challenges. The policy will be
designed to make companies more competitive and assist workers – and not to take
pressure off the need for strong managerial leadership at the top. Participating companies
would also have to demonstrate that they are employing best health practices, including
chronic care management, information technology, and other modernization initiatives that
maximize value, quality, and accountability. Finally, employers will also have the option
of buying early retirees into the new Health Choices Menu.

Fiscal Responsibility that Honors our Priorities

Fixing what is broken in our current health care system will, over time, slow the growth in
overall U.S. health spending, reducing pressures on our families, our businesses and the long-
term fiscal outlook. Yet, to ensure that health coverage is immediately affordable for all
Americans through provisions such as the new health tax credit, an up-front federal
investment will be necessary. To ensure that this is done in a fiscally responsible manner, the
new investment will be funded in two ways:

1) Savings from Modernization and Reforms that Target Overpayments: The majority
of savings from the American Health Choices Plan comes from excess expenditures
already within the health care system that can be reinvested in the necessary up-front
investment for a reformed health care system. Such savings — from modernization, better
coordination of care and prevention — could be far more significant than what is listed
below. Indeed, information technology alone could produce savings as high as $77 billion
annually according to RAND studies.xix The Business Roundtable estimated $2,200 in
national health savings for the typical family.xx This is why payers like General Motors
agree that the use of information technology must be accelerated in health care. Yet to
ensure that she is reversing the fiscal irresponsibility of the current administration, Hillary
Clinton is taking a conservative approach to counting such federal savings, focusing on the
specific initiative mentioned below. They pay for the initial necessary investments for
health care infrastructure (such as information technology) and help ensure that health care
 is affordable for all Americans. Specific initiatives that produce savings include:

ƒ Phase-Out Excessive Medicare Overpayments to HMOs and Other Managed

Care Plans ($10 billion in net savings): Independent study after study has concluded
that the current policy is overpaying participating managed care plans. Overpayment
reduces Medicare Trust Fund solvency and raises premiums for Medicare
beneficiaries. This reform would achieve substantial savings and would include
policies to improve access to programs that provide cost-sharing protections to low-
income beneficiaries (e.g., revise overly restrictive asset-test rules).

ƒ Dedicate Portion of Savings Achieved from Reduced Need for Uncompensated

Care Payments ($7 billion in net savings): In the context of health care reform, there
will be a reduced need for so-called “disproportionate share hospital” (DSH) payments
now used for uncompensated care burdens imposed on providers. A reduction in DSH
payments outside the context of universal coverage initiatives makes no sense and
should occur only in a careful transition as coverage expands. However, as all
Americans are covered, a percentage of savings from reduced DSH liabilities should
be reinvested in public hospitals, community health centers, and surge capacity to
ensure health system capacity during natural disasters, epidemics, or when national
security is threatened.

ƒ Apply Purchasing Leverage to Reduce Prescription Drug Costs (At least $4

billion in savings): Americans pay the highest prices in the world for drugs, and no
other nation spends what we do for health insurance. In the last decade, prescription
drugs accounted for 15 percent of the total increase in health spending, despite the fact
that they account for only about 10 percent of all health costs.xxi This plan will tackle
drug costs by allowing Medicare to negotiate lower drug prices; creating a pathway for
biogeneric drug competition; removing barriers to generic competition; and providing
more oversight over pharmaceutical companies’ financial relationships with providers.

ƒ Modernize Health Care Delivery System to Promote Value and Quality (At least
$35 billion): As outlined previously, the plan includes multiple policies designed to
apply technology and clinical best practices to improve quality, reduce errors, and
eliminate extraordinarily expensive waste. These initiatives include: information
technology, prevention, chronic care coordination, and comparative effectiveness
research. The plan will improve quality as it improves the value of care. Among other
policies, it will align Medicare payments with performance to both promote quality
and reduce the geographic variation in care; provide patients with information on
provider performance through databases and decision tools; and ensure “truth in
advertising” to crack down on misleading and costly prescription drug advertising and
direct-to-consumer advertising.

2) Redirecting Tax Breaks

ƒ Redirect Savings from High-Income Tax Cuts for Tax Breaks to Ensure
Affordable, Health Care Coverage: The American Health Choices Plan will redirect
 the revenue gained from not continuing President Bush’s income tax rate cuts and
exemption increases (known as PEP and Pease) for households making over $250,000
to help finance health reform. While this small percentage of well-off Americans
would see their tax rates returned to pre-Bush levels, the plan would offer tens of
millions of Americans a new tax credit to make premiums affordable. Those tax breaks
more than offset the increase in revenues derived from not renewing these provisions
of the Bush tax cuts and capping the tax exclusion for health care for the highest
income Americans (explained below), making the plan a net tax cut for American
taxpayers.

ƒ Making the Employer Tax Exclusion Fairer: The fact that health premiums paid by
employers are excluded from workers’ taxes (i.e., they are not counted as income) has
benefited hundreds of millions of Americans and led to employer pooling of high- and
low-risk workers. The American Health Choices Plan rejects calls to limit the tax
exclusion for middle-class Americans who have negotiated generous coverage or for
those whose premiums are high due to health status, age, or high local health care
costs. However, at a time of limited resources, it is neither prudent nor fair to allow
the portion of a high-end plan that is in excess of the typical Health Choices Menu plan
to be tax subsidized for the highest income Americans. A high-income American
would still get a tax break for the employer contribution to the cost of a typical plan,
like the Congressional plan, and they could still choose to get additional high-end
coverage. But given that the highest income American already receives a tax benefit
for purchasing a quality plan that is about twice as large as what a typical American
taxpayer receives, the choice by such high-income Americans to obtain additional
high-end benefits should be at their own — and not the taxpayers’ — expense.

Balanced Financing for Health Reform

Reinvest Savings from Efficiency Reforms: The plan makes a series of changes to improve value and
performance of America’s health care system, as well as to eliminate waste. The federal savings from
these policies will be reinvested to strengthen and modernize the system to make health insurance
coverage more affordable for all Americans.
 Phase-out Excessive Medicare Overpayments to HMOs and Other
Managed Care Plans
(Based on CBO estimate of HR 3162 Act, 8/1/07): $10 billion

Dedicate Savings from Unnecessary Medicare and Medicaid Spending

(Includes savings from Medicare/Medicaid DSH payments in the
context of coverage for all and net of new investments in the safety net)
(Based on CBO Budget Options, 2/07; MedPAC): $7 billion

Constrain Prescription Drug Costs

(e.g., competition savings from biogenerics and removal of barriers to
market access for generic drugs, empowering Medicare to negotiate,
reimportation, higher Medicaid brand rebates, use of e-prescribing technology)
(Based on CBO estimate of HR 3162, 8/1/07; Express Scripts, 2/07;
CBO Budget Options, 2/07; Gorman Health Group, 7/07): $4 billion

Modernize Health System (e.g., health information technology, comparative

effectiveness, chronic disease management) (Conservative estimate based
on RAND, 9/05; Business Roundtable, 6/07; other studies; assumes
implemented in public programs and Health Choices Menu): $35 billion

Total Federal Savings from Reducing Overpayments and New Efficiencies: $56 billion

Redirect Tax Breaks: New tax credits will make health insurance affordable for working families.
These tax credits will be financed by redirecting tax breaks and closing loopholes:

Discontinue Bush Tax Cuts for Top Two Income Tax Brackets and
Bush Increases in Tax Exemptions (PEP/Pease) for Households over
$250,000 (Calculations based on Tax Policy Center, 2/19/04, 11/2/04;
CBO Budget Options, 2/07): $52 billion

Cap Federal Income Tax Exclusion of Employer Contributions

for Health Benefits for Households over $250,000
(Based on Tax Policy Center, 2/6/07): $2 billion

Total Tax Savings from Limits on High-Income Tax Breaks: $54 billion

Total Savings / Reinvestment: $110 billion

###

Paid for by Hillary Clinton for President

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xx
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xxi
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